Business combinations accounting

The accounting for business combinations (ASC 805), discontinued operations, divestitures, and related topics such as impairments, intangibles, and segment reporting continue to pose many challenges and remains on the SEC's radar screen.

Equity Method Accounting - update

At its March 18, 2015 meeting, the Financial Accounting Standards Board (FASB) voted to add to its agenda a project to simplify two aspects of the equity method of accounting:

The requirement that an entity account for the difference between the cost of an investment and the amount of underlying equity in net assets of an investee (referred to as “basis difference”) as if the investee were a consolidated subsidiary and related disclosures.

The requirement that an entity retroactively adopt the equity method of accounting if an investment that was previously accounted for on other than the equity method becomes qualified for use of the equity method by an increase in the level of ownership interest.

The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 60 days. The proposed Accounting Standards Update is tentatively expected to be issued in the second quarter of 2015.

Measurement Period Adjustments - update

At its March 18, 2015 meeting, the FASB voted to add to its agenda a project to simplify one aspect of the accounting for business combinations – the accounting for measurement period adjustments. The project is expected to simplify the accounting by removing the requirement to account for measurement period adjustments retrospectively.

The FASB decided that during the measurement period, an acquirer would recognize adjustments of provisional amounts in the reporting period in which the adjustment amount is determined. The acquirer would record, in the current period income statement, the cumulative effect on earnings of changes in depreciation, amortization, or other income effects, as a result of the change to the provisional amount.

The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 45 days. The proposed Accounting Standards Update is tentatively expected to be issued in the second quarter of 2015.

Clarifying the Definition of a Business - update

The FASB has undertaken a project that is intended to clarify the definition of a business with an objective of addressing whether certain transactions should be accounted for as asset acquisitions or acquisitions of businesses. Differentiating between an asset and business can be challenging, particularly in certain industries. This project is also intended to provide guidance for partial sales or transfers involving in-substance nonfinancial assets. The Board has begun meeting on this project, but no technical decisions have been made so stay tuned for further developments.

Accounting for Goodwill & Intangible Assets - update

Following the issuance of Accounting Standards Update No. 2014-02, Accounting for Goodwill, which significantly changes the way that private companies can account for goodwill, the FASB has undertaken a project to consider changes to the accounting for goodwill for all companies (including public, private and nonprofit entities). At the November 2014 meeting the board requested the staff to research potential alternatives related to amortizing goodwill, and simplifying the impairment test. At the November meeting the board also decided to add a separate project to its agenda for public business entities and not-for-profits on a potential simplification to the accounting for identifiable intangible assets in a business combination. The Board is considering several potential alternatives related to both of these projects and is closely monitoring the IASB’s agenda.

Reporting Discontinued Operations - new standard

In April 2014, the FASB issued a new standard changing the threshold for reporting discontinued operations and requiring new disclosures for disposals. The new guidance defines a discontinued operation as a component (or group of components) that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. A strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity. Although “major” is not defined, the FASB provided examples of when a disposal qualifies as a discontinued operation.

Under the new standard, discontinued operations presentation is no longer precluded due to significant continuing involvement with a component after a disposal or failure to eliminate the operations or cash flows of a disposed component from an entity’s ongoing operations.

The new standard also has new disclosure and presentation requirements that apply to discontinued operations and to disposals of individually significant components that do not qualify as discontinued operations. The guidance applies prospectively to new disposals of components and new classifications as held for sale beginning in 2015 for most entities, with early adoption allowed. PwC's Dataline on discontinued operations, and Financial Statement Presentation accounting and financial reporting guide summarizes the main provisions, provides insights into key aspects of the standard, and highlights areas to consider when applying the new guidance.

Pushdown Accounting - new standard

In October 2014, the FASB issued new guidance on pushdown accounting and the SEC rescinded its pushdown accounting guidance in Staff Accounting Bulletin Topic No. 5.J, New Basis of Accounting Required in Certain Circumstances (SAB Topic 5.J). The new guidance makes pushdown accounting elective for all entities, public and nonpublic, with the election available at each change-in-control event. Previously, there was limited guidance in U.S. GAAP on when pushdown accounting should be applied other than SAB Topic 5.J, which applied only to the filings of SEC registrants and required (or precluded) pushdown accounting in certain circumstances.

The new pushdown accounting guidance provides an entity with the option to apply pushdown accounting each time there is a transaction or event in which another entity or individual (acquirer) obtains control of the entity (“change-in-control event”). An acquirer may obtain control of the entity either directly through purchase of the acquired entity’s equity interests (or equity interests of the acquired entity’s parent), or without transferring consideration, such as when certain rights in a contract lapse. The existing guidance in U.S. GAAP should be applied to determine if and when an acquirer has obtained control of the entity.

The election to apply pushdown accounting should be made in the period in which the change-in-control event occurs. Once pushdown accounting is applied, it is irrevocable. However, if an entity did not apply pushdown accounting at the time of its most recent change-in-control event, in a subsequent period it can elect to do so retrospectively as a change in accounting policy.

The pushdown accounting standard is effective immediately for all transactions in periods for which financial statements have not been issued. Entities that did not elect pushdown accounting for a change in control event that occurred prior to the effective date may do so as a change in accounting policy.

Refer to PwC’s In depth on the new pushdown accounting standard for more information.

Continued Areas of Focus

Among the continuing areas of challenge for preparers and users is the application of guidance for:

Accounting and valuation of contingent consideration;

Accounting for changes in ownership interests and noncontrolling interests;

Segment reporting, and

Impairments of goodwill and long-lived tangible and intangible assets.

Accounting guide

This PwC guide explains the principles of accounting and financial reporting for business combinations and noncontrolling interests (ASC 805) under both U.S. GAAP and IFRS. This guide includes our perspectives on the application of those principles, and our insights on the challenges of accounting for intangible assets and goodwill in the post-combination period. Read more

Are you considering an acquisition? Hear PwC's Brian Ness and Sara DeSmith discuss contingent consideration, continuing involvement and other accounting aspects in the mergers and acquisition space.

Quarter close

6/15/15 | Assurance services

This edition features recent business, FASB and regulatory developments, including mitigating foreign currency volatility, the SEC's pay-for-performance proposal, developments in the new revenue recognition standard, US GAAP accounting simplifications, and more.

Tax planning and accounting considerations for companies in bankrtupcy and those emerging from bankruptcy.

Webcast

Energy & mining

Watch a replay of our recorded webcast in which we discuss valuation and impairment trends in the energy sector, including key assumptions, inputs and other considerations used by many energy companies in assessing long-lived assets for impairment.

Do you have an equity method investee? Hear PwC's Brad Jansen share his insights on how to assess significant influence in the equity method of accounting.

Webcast

Assurance services

In this webcast, turnaround and bankruptcy professionals from PwC's National Office and the Deals practices discuss key considerations for companies in distress, including executing a successful turnaround, the bankruptcy filing and reporting process, and emerging from bankruptcy. Watch a replay or participate in our on demand (CPE-eligible) version.

5/8/15 | Transaction services

The European high-yield debt market has seen tremendous growth since the 2008 financial crisis. Prior to 2008, most European issuers with non-investment grade credit ratings obtained financing privately from banks rather than issue debt on public markets. That pattern has changed dramatically, however. More stringent capital requirements under Basel III have prompted European banks to reduce their corporate lending, forcing many lower-rated companies to borrow on public markets for the first time

5/5/15 | Assurance services

In this issue of The Bit, we provide energy company executives and board members an overview of the main elements of the new standard, including differences from prior guidance with an emphasis on important considerations for energy companies.

This quarterly publication is designed to keep directors informed about the latest accounting and financial reporting issues.

Quarter close

3/16/15 | Assurance services

The quarter close publication and video perspectives provide insight into the business and accounting impacts of declining oil and gas prices, recognizing the accounting implications of the Affordable Care Act, FASB, IASB and TRG developments related to implementing the new revenue standard, updates on FASB’s simplification proposals for stock-based compensation and income taxes, and more.

12/11/14 | Assurance services

This Practical tip discusses the accounting for discontinued operations subsequently retained by an entity.

Quarter close

12/8/14 | Assurance services

This edition of The quarter close provides insight into the potential effect of the revenue standard on compensation plans, what to look for to identify embedded derivatives in new or modified debt agreements, a spotlight on the FASB’s newly unveiled guidance for applying pushdown accounting, an SEC focus on internal controls, and more.

Under the alternative, private companies will not have to separately recognize and measure certain intangible assets.

9/18/14 | Retail & consumer

What are the technical and reporting issues impacting retail and consumer products companies? PwC's Retail & Consumer KnowledgeBrief provides insights and summaries on two standards recently issued by the FASB, considerations and insights on the SEC’s continued focus on segment reporting, and more.

Accounting guides

9/16/14 | Assurance services

This PwC guide explains the principles of accounting and financial reporting for business combinations and noncontrolling interests (ASC 805) under both U.S. GAAP and IFRS. This guide includes our perspectives on the application of those principles, and our insights on the challenges of accounting for intangible assets and goodwill in the post-combination period.

Quarter close

9/15/14 | Assurance services

This edition updates you on recent FASB, SEC and other regulatory and corporate governance topics. Learn what's new now, and what to look for in the near future. We invite you to download our Q3 publication and view our new video perspectives.

Video

9/8/14 | Assurance services

Spin-off transactions are increasing in the marketplace. Is there one in your future? PwC's Neil Dhar, Ravi Rao and Beth Paul discuss the current market trends, key considerations for carve-out financial statements, and how to be successful both during and after a spin-off.

In the loop

9/3/14 | Assurance services

Spin-offs represent a growing trend in recent years. Is there one in your future? Gain insight into the spin-off process including developing carve-out financial statements and creating a sustainable stand-alone entity.

Webcast

Assurance services

Part 3 of PwC’s National Professional Services Group’s Accessing the capital markets series features Beth Paul, U.S. Strategic Thought Leader, Ravi Rao, National Office SEC Services Partner, and Neil Dhar, National Capital Markets Leader. The panel focuses on carve-out transactions and discusses trends in the divestiture market as well as how to manage the divestiture process. The panel also outlines key issues and accounting considerations, explores SEC reporting requirements, and provides key takeaways for participants.Watch a replay or participate in our on demand (CPE-eligible) version.

This Pharmaceutical and Life Sciences Alert focuses on in-process research and development (IPR&D) in acquisition accounting.

In the loop

5/20/14 | Assurance services

In the loop is an executive-level series addressing important financial reporting and regulatory issues. Our first edition discusses how changes in private company accounting could affect future deal or financing strategies.

The PCC continued redeliberation of an alternative for intangible assets in a business combination but made no decision.

M&A snapshot

4/7/14 | Assurance services

This is the second in our series focused on navigating the waters of a cross-border acquisition. The series looks at various aspects along the deal continuum, including pre-acquisition due diligence and strategies, financial reporting requirements, tax implications, and post-acquisition considerations. This edition provides insights on SEC and other financial reporting requirements that may apply in a cross-border acquisition.

The FASB and PCC have issued a new accounting standard for private companies that is intended to simplify the goodwill accounting model.

M&A snapshot

3/6/14 | Assurance services

This is the first in a series focused on navigating the waters of a cross-border acquisition. This edition focuses on the pre-acquisition phase, including how GAAP differences can impact valuation and how a company can manage the financial risk exposure that arises from a cross-border acquisition.

The AICPA’s Financial Reporting Executive Committee (FinREC) recently issued an Accounting and Valuation Guide covering acquired in process research and development assets.

1/23/14 | US Capital Markets and Accounting Advisory Services

Strong demand for IPOs continued in the fourth quarter of 2013, capping a robust year for the capital markets and setting the stage for continued growth in 2014. The window for raising capital in a robust IPO market tends to open with bursts of popularity then close quickly. This requires a constant state of readiness for the required IPO document that is filed with the Securities and Exchange Commission “SEC”. Don’t let unforeseen financial reporting items be the road block to accessing the IPO markets.

The EITF met on June 11, 2013 to discuss six issues. PwC's EITF observer provides you an insightful summary of decisions reached and the changes affecting US GAAP.

6/13/13 | Assurance services

On June 10, the FASB endorsed each of the accounting alternatives previously approved by the PCC, related to intangible assets, goodwill and interest rate swaps. This edition of Private company reporter provides further information on the proposed alternatives, as well as highlights of other recent developments related to private company reporting.

Dataline

6/7/13 | Assurance services

PwC provides details and thoughtful insights on the FASB's proposal to change the reporting of discontinued operations. This Dataline outlines the key details of the FASB’s proposal and includes PwC’s insights about how the proposed changes may impact current practice.

This edition of Mergers & acquisitions — a snapshot provides an overview of the accounting rules and a glimpse into some of the issues companies face in the accounting and valuation of acquired IPR&D.

EITF observer

3/18/13 | Assurance services

At the EITF's March 14 meeting, the Task Force discussed four Issues, reaching a final consensus on two issues (12-B and 12-G) and consensus-for-exposure on one Issue (13-B). Further discussion is expected on one issue (12-F). This edition of EITF observer provides a synopsis of the meeting.

2/21/13 | US Capital Markets and Accounting Advisory Services

Push down accounting refers to instances in which an acquiring entity (or parent company) pushes its new basis down to the stand-alone financial statements of an acquired entity. The Emerging Issues Task Force (EITF) is in discussions regarding the circumstances that drive a change in accounting basis or an acquired entity's stand-alone financial statements. Potential changes could result in more instances where push down accounting is required.

Dataline

12/13/12 | Assurance services

The 2012 AICPA National Conference on Current SEC and PCAOB Developments (the Conference) was held on December 3, 4, and 5, 2012. Conference presenters included representatives from regulatory and standard-setting bodies, auditors, users, preparers, industry experts, and an investor panel. Remarks centered mainly on the status of potential incorporation of IFRS into the U.S. financial reporting system, updates on regulatory and financial reporting matters, capital formation, and the auditing profession’s impact on the reliability and usefulness of financial statements.

M&A snapshot

12/13/12 | Assurance services

The acquisition of a business can have a significant impact on both the risk exposures and risk management strategies of the combined entity. In many cases, an acquirer’s financial risk exposure will increase as a result of the acquisition. However, there may be situations in which the acquiree’s operations reduce the acquirer’s current risk exposure. In any event, identifying potential changes in enterprise risks, creating an action plan to address them, and managing changes to risk management strategies post-acquisition are critical to developing short- and long-term solutions for integrating financial risk management considerations in an acquisition.

Dataline

12/3/12 | Assurance services

This year end, entities continue to face many complex financial reporting issues such as providing new fair value disclosures, accounting for debt modifications, and evaluating revenue recognition guidance. Economic challenges around the world continue to have broad financial reporting implications. While not an all-inclusive list, this Dataline is intended to serve as a timely reminder of leading practices and lessons learned on key issues that companies should consider as they navigate the year-end financial reporting process.

9/17/12 | Assurance services

IFRS: M&A perspectives

Dataline

8/17/12 | Assurance services

The FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (the revised standard), on July 27, 2012. The revised standard is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment by providing entities with an option to perform a "qualitative" assessment to determine whether further impairment testing is necessary. The approach is similar to the guidance finalized last year for goodwill impairment testing. This Dataline looks at the key provisions of the revised standard and offers our observations.

M&A snapshot

4/25/12 | Assurance services

Companies preparing to go public often face a number of issues related to their financial statements. A common issue is whether push-down accounting should be applied. Push-down accounting is the practice of adjusting the standalone financial statements of an acquired company to reflect the basis of accounting of the buyer. This edition of Mergers & acquisitions - a snapshot, provides an overview of the SEC's rules on push-down accounting and a high-level summary of the complexities and opportunities that can arise in applying the rules to common deal structures.

Tax accounting insights

4/15/12 | Tax accounting services

Goodwill impairment testing continues to be a challenging and complex area of practice. As companies perform goodwill assessments, tax considerations can play a critical role in the final conclusions. To assist you with your goodwill impairment testing, PwC has refreshed our Goodwill Impairment Testing: Tax Considerations publication (originally released in December 2009).

M&A snapshot

12/14/11 | Assurance services

Determining whether an acquired group of assets is a business has proven to be one of the more challenging aspects of applying the current M&A accounting guidance. For many transactions, the determination will be straightforward. However, the current guidance will cause many transactions that are "on the edge," and previously would have been accounted for as asset acquisitions, to be accounted for as business combinations. This edition identifies relevant considerations in determining whether a business has been acquired and why it matters not only upon acquisition but also for disposals and public company reporting.

M&A snapshot

9/26/11 | Assurance services

In a business combination, buyers are required to record the acquired assets and assumed liabilities of a business at their fair values. Fair value reflects the price that market participants would receive to sell an asset or pay to transfer a liability. Assets and liabilities may be used differently by different market participants, resulting in variations in values. Therefore, a market participant's view is an important aspect of the valuation process as a buyer cannot look only to its own intended use of an asset or its ability to transfer a liability at a certain price. This publication provides insight on the identification of market participants, as well as how entities can develop market participant assumptions.

M&A snapshot

12/16/10 | Assurance services

The M&A Standards changed how a parent reports the minority shareholder interests in a partially owned subsidiary in its consolidated financial statements. The minority shareholder interests, or noncontrolling interests (''NCI''), are generally presented within equity as if the parent and the minority shareholders have similar economic interests. Previously, NCI were generally presented between liabilities and equity (''mezzanine equity''). This edition focuses on the classification of redeemable NCI and how different minority shareholder rights may lead to different financial reporting by the parent.

M&A snapshot

9/30/10 | Assurance services

In many M&A transactions, companies looking to dispose of non-core businesses or to generate cash may sell only a portion of their operations (e.g., a subsidiary or a business unit). As part of these transactions, a seller may need, or want, to prepare separate financial statements of the operations being sold, commonly referred to as carve-out financial statements. The preparation of these financial statements can be challenging as there is limited guidance covering their composition. This volume of Mergers & Acquisitions - A snapshot, focuses on some of the issues companies may face when preparing carve-out financial statements, how those statements may differ from their own financial statements, and how the M&A Standards may impact...

M&A snapshot

3/11/10 | Assurance services

FASB Accounting Standard Codification Topic 810 incorporates FAS 167, Amendments to FASB Interpretation No. 46(R)), which is the U.S. standard on consolidation (the Consolidation Standard). The Consolidation Standard is effective as of January 1, 2010 for calendar year end companies and the impact will soon be reported in the first quarter reporting cycle. As a result of applying the new guidance, certain entities may need to be consolidated while other entities may need to be deconsolidated. Determining who consolidates is just the beginning.

M&A snapshot

2/25/10 | Assurance services

In many M&A transactions, when the buyer and seller cannot agree on the total purchase price in an acquisition, the two parties agree to an additional payment, or contingent consideration, based on the outcome of future events. These payments are commonly referred to as earnouts and are typically based on revenue or earnings targets that the acquired company must meet after the acquisition date. The accounting for these arrangements under the M&A Standards represents a significant change from past practice.

M&A snapshot

11/30/09 | Assurance services

In many M&A transactions, a buyer may acquire assets it does not intend to use. Prior to the M&A Standards, buyers generally would assign little or no value to assets that are not intended to be used when accounting for an M&A transaction. Now, such assets are required to be recognized at fair value from a market participant perspective, even if that perspective differs from that of the actual buyer. One common type of asset that a buyer does not intend to actively use that is receiving considerable attention is called a "defensive asset."

M&A snapshot

7/1/09 | Assurance services

Accounting for partial acquisitions and disposals - it's not so simple! In an economic environment where many companies are buying and selling portions of businesses, the M&A Standards will have an impact on how companies account for these types of transactions. At first glance, the fundamental concept of "control" that drives the accounting seems easy to understand. If a company gains control, the acquisition is a business combination. If a company loses control, it deconsolidates the subsidiary. If a company maintains control, the transaction is recorded in equity. Simple, right? Not so fast!

M&A snapshot

4/1/09 | Assurance services

Doing a deal? How will you compensate employees of the target? The new M&A Standards may impact your decision. Determining whether employee arrangements represent compensation for service prior to and/or after the acquisition will have a direct impact on the amount included as purchase price versus the amount expensed in the future. This installment of Mergers & Acquisitions - A snapshot explores some of the more common issues related to employee compensation arrangements typically seen in business combinations... contingent consideration, golden parachutes and stay bonuses, and exchanges of stock compensation awards. Employee compensation decisions agreed upon during deal negotiations could impact the acquirer's future financial results.

M&A snapshot

3/1/09 | Assurance services

Are you ready for volatility in your effective tax rate? The new M&A standards will likely impact a company's effective tax rate. This impact will be felt by acquisitive companies in all industries, public and private, and as early as the first quarter of 2009 because parts of the new M&A standards apply to prior acquisitions. This installment of Mergers & Acquisitions—A snapshot focuses on how the accounting for merger and acquisition transactions will create volatility in an acquirer's effective tax rate in periods before and after an acquisition.

M&A snapshot

2/1/09 | Assurance services

Did you know that the new M&A standards could impact your company regardless of whether you plan to close a deal? Given the current economic environment, understanding the new M&A standards may not be a priority for many companies, particularly if M&A activity is not on the horizon in the foreseeable future. However, companies should be careful not to overlook the new M&A standards, as they may have a significant impact, even without a deal. This installment of Mergers & Acquisitions - A snapshot will help you avoid last-minute surprises by understanding how the new accounting and reporting standards for M&A may affect your financial reporting even though you haven’t closed a deal.

M&A snapshot

12/1/08 | Assurance services

Since the adoption of FAS 142, the goodwill impairment standard, the equity markets have generally trended upward. Accordingly, impairments may not have been as frequent as we expect to see them today. This edition of Mergers & Acquisitions - A snapshot, focuses on some of the issues companies may face in preparing goodwill impairment tests in the current environment. It also serves as a refresher on certain aspects of the framework for conducting those tests.

M&A snapshot

10/1/08 | Assurance services

Recognizing that the new standards affecting mergers and acquisitions — FAS 141(R) and FAS 160 — will dramatically change the way companies negotiate and account for M&A, PwC has launched the first in a series of publications that will help companies keep abreast of emerging issues resulting from the new standards, as well as provide them with ideas on modifying current strategies and employing new ones for future deals. This first installment of Mergers & Acquisitions - A snapshot focuses on how the accounting treatment for M&A transactions will depend considerably on whether the deal closes before or after the effective date of the new standards.